Specialty instant coffee in China: Exploring a rapidly-growing market

Instant coffee consumption has been on the rise in China since Nestlé entered the market in the 1980s. And while overall consumption has historically been low, Chinese coffee consumption is now growing by a staggering 30% every year. Alongside this, we are now seeing a growing focus in quality.

So, what does this mean for instant coffee in China today? Well, according to an article by Mintel Food and Drink’s Daisy Li, in 2016, 32% of Chinese consumers reported drinking instant coffee; however, just a year later, this figure had fallen to 26%.

There is one comparatively small but rapidly-growing market that can leverage both convenience and quality to deliver a product that meets these growing demands: specialty instant coffee. To learn more about the role it plays in the Chinese coffee sector, I spoke to two professionals in the country. Read on to find out what they told me.

You may also like our article on entering China’s emerging coffee market.

China’s instant coffee history

When Nestlé entered the Chinese coffee market, they had very few competitors. China is historically a tea-drinking country; the US-China Institute reports that in 2014, the Chinese population consumed some 1.6 billion pounds (720 million kg) of tea.

Nestlé’s success in China can also be attributed to marketing their coffee to younger consumers. In 2007, China Daily reported that the company started by targeting 18 to 25 year olds, predominantly focusing on students within that demographic.

At the time, those attending university in China were more likely to be affluent when they graduated. This helped Nestlé slowly build a base of consumers with disposable income, in contrast to a majority who had less money and less interest in drinking coffee.

As this demographic grew in size, instant coffee consumption increased. By 2018, Mintel figures show that 58% of Chinese consumers were drinking instant coffee at least once a week, while 26% consumed it at least once a day. 

Specialty instant coffee in China

The wider instant coffee market in China is expected to be worth over US $4.8 billion by the end of 2022. Differentiation is of key importance in this market; in 2013, 54% of all retail coffee sold in the country was some kind of flavoured or sweetened instant coffee. It’s believed this trend is driven by the popularity of instant milk teas; China accounts for 92% of the Asia Pacific region’s instant tea sales.

So, what does this mean for specialty instant coffee? Well, there is certainly space in the market. One of the biggest names in this segment is Saturnbird, which was founded in 2011 and started offering specialty-grade instant coffee in China four years later. 

Saturnbird’s packaging was designed as miniature plastic takeaway coffee cups. This was an innovative marketing strategy that helped capture the attention of consumers who were familiar with higher quality coffee and café culture.

Each portion of Saturnbird’s instant coffee (2g to 3g) costs RMB 4.5 to 8 (US $0.70 to 1.24). Saturnbird also uses 100% arabica coffee that scores at least 80 points, making sure that it is specialty grade. This means that Saturnbird products broadly balance affordability and quality with unique and photogenic packaging.

During the unofficial Double 11 holiday (which celebrates single people in China and promotes shopping), the brand outsold Nestlé in instant coffee sales to take first place in the category on ecommerce platform Tmall. This was the first time the market leader had been beaten in more than 30 years.

Greg Savarese is the Managing Director of SinoTaste Group, a partner of Ocean Grounds Coffee Roasters in Shanghai. “[In China], specialty-grade instant coffee consumers actually cross over with commodity-grade fresh coffee consumers – those who purchase fresh coffee in convenience stores and fast-food chains, for instance,” he says. 

“One main reason for this is the fact that the price bands for specialty-grade instant and commodity-grade fresh are similar.”

Convenience and affordability: Two key factors

In China’s rapidly-growing coffee market, affordability is a key consumer priority, even within specialty coffee. This presents an opportunity for traditionally more affordable and convenient coffee options, such as pods and instant.

Hengye Li works for Secre Coffee in Guangzhou, Guangdong. Secre Coffee was founded by former executives of major coffee businesses and tech firms, including Starbucks and Uber. Hengye says the brand’s estimated sales reached around RMB 120 million (US $18 million) in 2020. 

“For most Chinese people, spending hundreds of RMB to buy coffee appliances is not that affordable,” Hengye says. “Many people choose [specialty-grade] instant coffee to get a better understanding of specialty coffee, and then slowly move towards buying coffee beans.”

“Chinese consumer sensitivity about the price of coffee is still primarily related to their income level rather than their demand for one type of coffee or another,” Greg adds. “Specialty instant coffee meets the needs of consumers who have an average income level but a strong demand for coffee.”

Convenience also plays an important role in this market segment. It has driven the growth of this segment and led brands to incredible success. Saturnbird instant coffee products, for example, dissolve in cold water or milk in just three seconds. 

However, convenience has also driven the growth of another major market segment across China: coffee pods.

“Capsule consumption has been growing fast in the hotel, restaurant, and catering channels,” Greg says. “It is an attractive choice for luxury hotel chains and premium restaurant chains due to its affordable cost, acceptable taste, and easy maintenance.”

Nespresso opened its 200th boutique in Shanghai in 2010. Nespresso “boutiques” are stylish concept stores that create a sense of luxury. Customers immediately become members of the free “Club Nespresso” programme once they have purchased capsules.

“Much of this growth has been driven by rising incomes, an awareness of new things and a desire [for consumers] to improve their lives,” Hengye adds.

Millennials are leading the charge

Much like to Nestlé’s early marketing strategy, specialty instant coffee companies have largely been attracting the attention of younger Chinese consumers. “Some 90% of the consumers for specialty instant coffee are younger, between [the] ages of 18 to 35 years old,” Hengye tells me.

Greg adds: “These are trendy, mostly female consumers in their 20s who are [pursuing careers in the] design, advertising, sales, and luxury sectors.”

One of the main reasons for this is the packaging design of many specialty instant products. Generally, these are bright, colourful, energetic, and have a heavy focus on eye-grabbing branding. This, Greg says, appeals to the millennial demographic.

“Most convey young, energetic brand messages through packaging, co-branding, and social media,” he adds. “These are traits desired by many early adopters – urban white collars, bohemians, and other such trendsetters.

“Creativity is another compelling reason, as [it allows] consumers to ‘DIY’ the recipes with milk, ice cream, or other ingredients to suit their individual preferences,” he adds. 

However, beyond this, social justice, ethical sourcing practices, and sustainability are also areas of focus for millennial consumers beyond China, especially in the coffee sector. Preconceptions about the country have led some to believe that sustainability is not high on the agenda for Chinese consumers.

But is this changing?

Greg says: “According to a survey conducted by Nielson [in China] in 2017, 70% of [surveyed] interviewees said that they pay attention to environmental protection and are willing to pay more to protect the environment. This is above the global average.”

Major coffee companies are also responding to these consumer concerns. For example, in 2019, Nespresso partnered with JD Logistics to launch an efficient door-to-door capsule recycling service. This is heavily integrated with WeChat, the most popular mobile application in China.

What does this mean for Chinese coffee consumers?

Hengye says he believes that specialty soluble coffee consumption will lead to greater awareness of specialty coffee more widely.

“[I think] consumption for pour-over coffee will certainly increase,” he says. “People who drink specialty instant coffee have [an] interest in specialty coffee.” 

Coffee consumption in China is growing at around 30% a year. This means that there is a huge amount of opportunity for coffee businesses looking to enter the market. 

But where, specifically, are these opportunities?

Firstly: out-of-home (OOH) consumption. Estimates from the Direct China Chamber of Commerce predict that 75% of sales in the Chinese coffee sector will be OOH by 2023. The organisation anticipates that consumers will start to see coffee as more of an experience, rather than just a beverage – much like in other major consuming countries.

And despite affordability being a priority for most consumers, Chinese roasters are also becoming more and more interested in more expensive, rarer coffees. In 2018, a collective of mostly East Asian roasters (including some in China) paid US $803 per pound for a Geisha lot at the Best of Panama auction. 

In addition to these two categories, ecommerce is another massive emerging market in China’s coffee sector. Of the 194 billion global downloads of mobile apps in 2018, China accounted for nearly half. The average Chinese mobile user downloaded an average of 59 apps in the first three months of 2019.

This trend has naturally informed coffee consumption; some 70% of Starbucks customers in China order through their phones, and ecommerce remains the number-one way of buying coffee in the country. Saturnbird opened an online store early in their journey, as well as advertising their products through Tmall.

It’s fair to say that China’s early relationship with instant coffee has created a focus on convenience and affordability that is still present today. However, as time has gone by, higher quality specialty instant and capsule coffee options are starting to cater to younger demographics.

As more Chinese coffee drinkers show their interest in better quality soluble coffee, we could see a change. This behaviour could prove to be the early signs that specialty coffee has potential in the market. Either way, there’s no doubt that coffee consumption in China is a fascinating, evolving trend with plenty of market opportunity for producers, traders, and roasters alike.

Enjoyed this? Then read our article on the rise of instant coffee.

Photo credits: Secre Coffee

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